BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved on: 16.09.2019 Date of Decision : 18.10.2019 Appeal No. 342 of 2017

1. Vijay Jeevan Patel 3/2, Anand Niketan Bldg. G.M. Road, Pestam Sagar, Chembur, Mumbai – 400 087.

2. Hitesh Mohanbhai Patel 3/8, Kailash Nagar, M.G. Road, Rajawadi, Ghatkopar (E), Mumbai – 400 077.

3. Bhavna Hitesh Patel 3/8, Kailash Nagar, M.G. Road, Rajawadi, Ghatkopar (E), Mumbai – 400 077.

4. Dimple Vipul Patel House No. 38/9, First Floor, Kailash Nagar, Bhaveshwar Cross Lane, M.G. Road, Ghatkopar (E), Mumbai – 400 077.

5. Vipul Mohanbhai Patel House No. 38/9, First Floor, Kailash Nagar, Bhaveshwar Cross Lane, M.G. Road, Ghatkopar (E), Mumbai – 400 077. ….. Appellants

Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051. .…Respondent Mr. Ramesh Mishra, Practicing Company Secretary for Appellants. Mr. Gaurav Joshi, Senior Advocate with Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates i/b The Law Point for the Respondent. CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member Per : Dr. C.K.G. Nair, Member

1. This appeal has been filed challenging the order of the

Adjudicating Officer (‘AO’ for short) of Securities and Exchange Board of India (“SEBI’ for short) dated October 31,

2017. By the said order a consolidated penalty of Rs. 55 lakh

has been imposed upon the appellants which is in the range of Rs. 3 lakh to Rs. 25 lakh vis-à-vis each appellant under Section 15HA of the Securities and Exchange Board of India Act, 1992 for violation of various provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (‘PFUTP Regulations’ for short).

2. On the basis of certain complaints, SEBI conducted an

investigation into certain alleged irregularities in the trading of the scrip of Shreeyash Industries Limited (‘SIL’ for short). The investigation period is from January 1, 2012 to September 30, 2012. The investigation, inter alia, revealed that the appellants which are connected entities had dealt in the scrip of SIL in a fraudulent and manipulative manner by indulging in synchronized trading and thereby creating artificial volume and price. Hence the initiation of proceedings by SEBI against the alleged violation of provisions of Regulation 3(a), (b), (c), (d), 4(1) and 4(2)(a) & (g) of the PFUTP Regulations. Following issue of show cause notice and after providing an opportunity of hearing etc. the impugned order was passed. The connections between the entities have been established through various KYC documents, common residential address, unique client code details etc.

3. During February 14, 2012 to July 9, 2012 the Company

made certain announcements regarding receipt of large orders which were also disclosed to the BSE Limited (“BSE’ for short). Through synchronized trading during this period the appellant bought and sold large quantities of shares of SIL. Price of the scrip increased from Rs. 21.5 on January 2, 2012 to Rs. 44 on February 21, 2012 and thereafter declined Rs. 8.09 on September 30, 2012. The appellants collectively called as ‘Patel group’ had traded on 162 days out of 190 trading days. On many days they were trading amongst themselves. The total quantity traded within the group was 12.92% of the total market volume. Hence, the charge of fraudulent and manipulative trades by indulging in synchronized trades and thereby creating false appearance in the market in the scrip of SIL.

4. Learned representative for the appellant Shri Ramesh

Mishra submitted that all trades were not synchronized, only 4.2% of the trades were synchronized which was just by chance and there were no manipulative intent. Similarly, relying heavily on the detailed data relating to trading in the scrip by appellants, the learned counsel contended that only on a few days some synchronization had happened in small volumes. For instance, in the month of March 2012 out of a total number of 636 trades on 22 days total number of synchronized trades were only 9 on 3 trading days and the percentage of such synchronized trades was only 6.11 percent of the total trades. It was also contended that all the appellants did not trade on all days rather there were only 3 of them trading on any particular date. It was also submitted that price manipulation was not part of the show cause notice but was brought in the impugned order subsequently.

5. Learned counsel for the appellant also placed reliance

on Securities and Exchange Board of India vs. Rakhi Trading Private Ltd. (Civil Appeal No. 1969 of 2011 decided on February 8, 2018) to emphasise that in the facts of the matter most of the trades of the appellants are not synchronized an ingredient needed to prove manipulation as held by the Hon’ble Supreme Court in the said order.

6. Learned senior counsel for the respondent Shri Gaurav

Joshi submitted that as given in the impugned order it is a matter of fact that there were a total of 10,418 trades for a total traded quantity of 61,02,728 shares at BSE. Out of these, 52 trades of 2,57,800 shares between the appellants during 30 trading days were synchronized trades i.e. trades where the difference between buy order time and sell order time was less than 60 seconds. Further, there was no difference between buy order rate and sell order rate as well as between buy order quantity and sell order quantity. The aforesaid synchronized trades of the appellants as a percentage to total market volume were 4.22% and contributed to increase of Rs. 10.85 to Last Traded Price (LTP) in the scrip. It is noted that the appellants indulged in synchronized trades amongst themselves and 85.93% of the total synchronized trades by the appellants happened under five seconds.

7. Learned senior counsel for the respondent cited para 68

of the order in the matter of Securities and Exchange Board of India vs Rakhi Trading Private Ltd. (2018) SCC OnLine SC 191 and submitted that a synchronized transaction will become illegal or violative of the Regulation if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and with a view to manipulate the price or volume of the scrip or with some ulterior purpose. Hence volume manipulation is also violative of PFUTP Regulations so is price manipulation.

8. In the light of the above finding, it was argued that it is

conclusively proved that appellants have indulged in synchronized trading which ballooned the market volumes and impacted the price of the scrip and since this was done intentionally by a group of entities there is no error in the finding that they have violated various provisions of the PFUTP Regulations which read as under:- PFUTP Regulations, 2003 Prohibition of certain dealings in securities

3. No person shall directly or indirectly—

(a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices

(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:- (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;”

9. We do not agree with the contentions made by the

learned counsel for the appellants as far as the merit of the matter is concerned. There is enough evidence to show that the appellants have indulged in synchronized trading between them on multiple occasions and involving substantial volume of trading. For instance, there are 34 occasions wherein a synchronized trade was executed within five seconds. Similarly, there are other 18 occasions wherein similar trading has been done within a span of 6 seconds to 60 seconds. On the specific dates identified in the order at pages 12-13 all the details relating to the buy clients, sell clients, synchronized quantity, number of synchronized trades, percentage of such trading to both market volume as well as to each client’s total trade, contribution to LTP are all given which conclude that the group as a whole on the specified dates has indulged in synchronization to the tune of 8.52% of the total trading which is not an insignificant quantity as in the order relied on by the appellants. When synchronized trades are entered into with nil or negligible time gap meeting of minds is also established. Accordingly, given the facts and circumstances of the matter, we cannot find fault in the findings in the impugned order that the appellants have violated the stated provisions of PFUTP Regulations for inflating the market volume and impacting the price by the fraudulent nature of their trading. Hence, the penalty imposed under Section 15HA cannot be faulted.

10. However, we note that one of the entities, namely,

Bhavna Hitesh Patel did not make any profits in the process and rather incurred a net loss. Therefore, the AO has imposed a penalty by taking the average gains of the four other appellants, which in our opinion is harsh, though making profits is not a pre-condition for imposing penalty. Similarly, we are also of the opinion that the penalty at the rate of three times the profit earned by the appellants in the given facts and circumstances also deserves some mitigation applying Section 15J of the SEBI Act. Therefore, considering all these factors specifically in the context of the present appeal the following amount of penalty would be sufficient to ensure justice:- (a) Vijay Jeevan Patel – Rs. 15 lakh (b) Hitesh Mohanbhai Patel – Rs. 7 lakh (c) Bhavna Hitesh Patel – Rs. 3 lakh (d) Dimple Vipul Patel – Rs. 3 lakh (e) Vipul Mohanbhai Patel – Rs. 3 lakh

11. Appellants are directed to pay the penalty within 30

days from the date of this order.

12. Appeal is partially allowed in above terms. No order on

costs. Sd/- Justice Tarun Agarwala Presiding Officer Sd/- Dr. C.K.G. Nair Member Sd/- Justice M.T. Joshi Judicial Member 18.10.2019 Prepared and compared by:msb